Property taxes are usually not included in your base mortgage payment, but your lender may require you to pay them through escrow
Your mortgage payment itself—the principal and interest you owe the lender—does not include property taxes. However, most lenders require you to set aside money each month in an escrow account that the lender then uses to pay your property taxes and homeowners insurance on your behalf when they come due. This means your actual monthly payment to the lender is often higher than just principal and interest, even though the property tax portion is technically separate.
Whether you pay property taxes through escrow depends on your loan type and down payment. Conventional loans with less than 20 percent down almost always require escrow. FHA loans require it. VA and USDA loans typically require it. If you put down 20 percent or more on a conventional loan, your lender may allow you to pay property taxes directly to your county instead of through escrow—but many lenders still require escrow anyway, so ask before closing.
The escrow amount changes every year because property tax bills change. Your lender estimates what your taxes will be, divides that by 12, and adds that monthly amount to your payment. When the actual bill arrives, the lender adjusts your escrow payment up or down for the following year. This means your total monthly payment is not fixed—it can rise or fall depending on your county's tax assessment.
Key Takeaways
- Property taxes are a separate debt you owe to your county, not to your lender, but most lenders require you to pay them through an escrow account attached to your mortgage.
- Your lender estimates your annual property tax bill, divides it by 12, and adds that amount to your monthly mortgage payment.
- Escrow payments change annually when your property is reassessed or tax rates change, so your total monthly payment can increase or decrease year to year.
- If you pay property taxes directly instead of through escrow, you remain responsible for paying your county on time—missing a payment can result in a tax lien on your home.
- You can request an escrow analysis from your lender if you believe your monthly escrow payment is too high or too low.
How escrow accounts work and why lenders require them
An escrow account is a holding account managed by your lender. Each month, you pay the lender a total amount that includes principal, interest, property taxes, and homeowners insurance. The lender keeps the tax and insurance portions in escrow and pays those bills when they arrive. You never write a check to the county or the insurance company—the lender does it for you.
Lenders require escrow because they have a financial stake in your home. If you stop paying property taxes, the county can place a tax lien on the property and eventually foreclose on it, which means the lender loses their collateral. Homeowners insurance protects the lender's investment if the house burns down or is damaged. By controlling these payments through escrow, the lender ensures they get paid before you do.
The lender is required by law to send you an escrow analysis statement at least once a year. This statement shows what you paid into escrow, what the lender paid out for taxes and insurance, and what your new monthly escrow payment will be. If there is a significant shortage or surplus—meaning you paid too little or too much—the lender may adjust your payment or ask you to make up the difference in a lump sum.
When you can pay property taxes directly instead of through escrow
If you have a conventional loan and put down 20 percent or more, federal law allows you to request that your lender let you pay property taxes and insurance directly. This is called waiving escrow. However, the lender can still refuse and require escrow anyway—there is no may provide you will be allowed to waive it, even if you meet the down payment threshold.
If your lender does allow you to waive escrow, you become responsible for paying your property taxes directly to your county assessor's office on the due date each year. Missing this payment has serious consequences: your county can charge penalties and interest, place a tax lien on your home, and eventually foreclose. You also remain responsible for maintaining homeowners insurance and providing proof of it to your lender each year.
Some borrowers prefer to waive escrow because they want control over when and how they pay, or because they believe they can invest the money and earn more than the lender's escrow account pays (which is typically zero interest). Others keep escrow because it simplifies budgeting and removes the risk of forgetting a large annual payment.
How property tax estimates are calculated and why they change
Your lender does not know your exact property tax bill when you close on your mortgage. Instead, they use your county's most recent tax assessment and the current tax rate to estimate what you will owe. They divide that estimate by 12 and add it to your monthly payment. When your actual tax bill arrives the following year, the lender adjusts the monthly escrow amount to match reality.
Property tax bills change for two main reasons: your home's assessed value goes up or down, or your county's tax rate changes. Assessments happen on different schedules depending on your state—some counties reassess every year, others every three to five years. When your home is reassessed, your tax bill can increase significantly, which means your monthly escrow payment increases too. This is why your mortgage payment is not truly fixed, even on a fixed-rate loan.
If your escrow payment increases sharply, you can request an escrow analysis from your lender to verify the calculation is correct. You can also contact your county assessor's office to understand why your assessment changed and whether you have the right to appeal it. Some counties allow homeowners to challenge assessments if they believe the value is too high.
The difference between property taxes and homeowners insurance in your payment
Property taxes and homeowners insurance are two separate costs that often appear together in your escrow account, but they work very differently. Property taxes are a debt you owe to your local government based on your home's assessed value. Homeowners insurance is a contract between you and an insurance company that protects your home and belongings from damage.
Your lender requires both because both protect the lender's investment. If you do not pay property taxes, the county can foreclose. If your house burns down and you have no insurance, the lender loses their collateral and has no way to recover the money they lent you. By bundling both into escrow, the lender ensures both obligations are met.
The escrow account treats them separately on paper. Your lender tracks how much you paid toward taxes and how much toward insurance. When the tax bill arrives, the lender pays it from the tax portion of your escrow. When your insurance premium is due, the lender pays it from the insurance portion. If one account runs short, the lender may ask you to increase your monthly payment to cover the shortage.
What happens if your escrow account has a shortage or surplus
A shortage occurs when you did not pay enough into escrow to cover the actual bills. This can happen if your property taxes increased more than the lender predicted, or if your insurance premium went up. When the lender discovers a shortage during the annual escrow analysis, they have several options: they can increase your monthly payment going forward, ask you to pay the shortage in a lump sum, or spread the shortage over the next 12 months by raising your monthly payment.
A surplus occurs when you paid more into escrow than necessary. This can happen if your property taxes decreased or if your insurance company gave you a refund. By federal law, if your surplus is more than $50, the lender must either refund it to you or credit it toward your next year's escrow payments. Some lenders automatically refund surpluses; others credit them unless you request a refund.
You can request an escrow analysis at any time if you believe something is wrong. If your property taxes dropped because you won an appeal, or if you switched to a cheaper insurance company, tell your lender. They will recalculate your escrow payment and may lower your monthly bill. Conversely, if you know your taxes are about to increase significantly, you can prepare by knowing your payment will rise when the new assessment takes effect.
How to find out what portion of your payment goes to property taxes
Your mortgage statement breaks down your payment into principal, interest, property taxes (escrow), and insurance (escrow). Look at the statement you receive each month—it will show the total amount due and how much of that goes to each category. The property tax portion is listed separately from the insurance portion, even though both are held in the same escrow account.
You can also contact your lender's customer service line and ask for a breakdown of your current monthly payment. They can tell you exactly how much is going to principal, interest, taxes, and insurance. If you are considering waiving escrow, this information helps you understand how much you would need to set aside each month to pay your property taxes directly.
Your annual escrow analysis statement provides the most detailed picture. It shows what you paid into escrow over the past year, what the lender paid out for taxes and insurance, and what your new monthly payment will be. Keep these statements for your records—they are useful if you ever need to dispute a payment or understand why your bill changed.
Frequently Asked Questions
Can I pay my property taxes separately even if my lender requires escrow?
No. If your lender requires escrow, you must pay property taxes through the escrow account. Your lender will not allow you to pay the county directly because they need to may support the payment is made on time. If you want to pay separately, you must first request a waiver of escrow from your lender, and they can refuse even if you meet the down payment requirements.
What happens if I disagree with my property tax assessment?
You can appeal your assessment directly to your county assessor's office—this is separate from your mortgage. If your appeal is successful and your taxes decrease, tell your lender so they can lower your escrow payment. The appeal process and timeline vary by county, so contact your assessor's office for specific instructions.
Will my property tax payment go down if I pay off my mortgage early?
No. Property taxes are owed to your county regardless of whether you have a mortgage. Once you pay off your loan, you will no longer pay through escrow, but you will still owe property taxes every year. You will then pay them directly to your county instead of through your lender.
How often does my escrow payment change?
Your lender reviews your escrow account at least once a year and adjusts your payment based on actual tax and insurance bills. Some changes happen annually; others happen more frequently if your insurance company raises your premium mid-year. You will receive notice of any change before it takes effect.
What if my lender made a mistake in calculating my escrow payment?
Request an escrow analysis from your lender and ask them to show you the calculation. If they made an error, they must correct it and adjust your payment going forward. If you overpaid, they will refund the difference or credit it to your account. Keep documentation of the error in case you need to dispute it later.